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ResearchReport Report Kondinin Group

SEPTEMBER 2013 NO. 44 www.farmingahead.com.au

The economics of on-farm grain storage Crunch the numbers specific to your operation

Independent information for agriculture


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When it comes to storing grain, two of the most common questions for farmers are: will investment in on-farm grain storage provide a good return; and how much storage should I have? Kondinin Group engineer Ben White takes a look at a Grains and Research Development Corporation tool designed to help determine the answers.

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No. 44 September 2013 Research Report

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The economics of on-farm grain storage

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grain storage. In some cases, depending on circumstances, it may be more beneficial to utilise the bulk handling system and have no on-farm storage at all. Determining the answer can be tricky but work conducted by Grains and Research Development Corporation has simplified the decision-making process with a cost-benefit calculator that takes into account the variables at play and distils the result to a simple cost of storage, return on investment and a resulting payback period. Of some of the 20-plus variables that need to be taken into account, most of these fit into two categories: the potential gains to be made through storing grain on-farm and the costs associated with doing so. Some of these costs will be fixed, such as depreciation, while variable costs including labour and shrinkage also need to be considered. Calculate all costs and benefits on a per tonne basis.

FIGURE 1 CME wheat futures, seasonal price variation (14 year average) (Based on $270/t at December, error bars to one standard deviation)

Price variance per tonne

W

ith more than 20 variables to consider, every farm will have a different solution and an optimal level of on-farm

$100 $80 $60 $40 $20 $0 $-20 $-40 $-60

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Source: Ag Concepts Unlimited

ANNUAL AVERAGING

Some benefits and costs will not be applicable every year but because most grain storage investments are long-term assets, a long-term approach and an annual average including probability should be used in calculations.

UPSIDES TO ON-FARM GRAIN STORAGE

Consider looking purely at the upsides of

grain storage without accounting for costs at this stage, these will come later. Harvest logistics: Timeliness plays a big part in minimising risk of crop damage due to weather events. Avoiding downgrade pricing can provide a financial benefit but it will not apply every year. Keeping harvesting equipment rolling and removing as much grain as possible is key to maintaining quality. If downgrading through damage

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IN I N G only occurs once in 10 years, multiply the potential downgrade per tonne by onetenth, or 10%. Seasonal market trend: Sometimes looking in the rear-vision mirror is the only way we can drive forward. GRDC commissioned Ag Concepts Unlimited to look at historical seasonal pricing over multiple years, to gauge average price variances. Error bars to one standard deviation illustrate that with the average upside or downside, how much fluctuation was observed over the long-term period. See Figure 1: CME wheat futures seasonal price variation. Historically speaking, in 95% of instances, wheat prices will fluctuate between a $40/t drop and a $90/t gain if we hold grain in a quality storage system until September instead of selling at harvest. But overall, an average 10% premium can be had in the long term. Other commodity and location seasonal pricing variations can be found at storedgrain.com.au Local market trends: Local markets can offer premiums for storing grain until it is required. Dairies are a good example, with feed usually delivered regularly over the

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Crunch the numbers: Applicable grain storage options vary depending on location, seasonal market trends and operational scale. Long term averages will yield the most accurate figures.

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year and a premium price paid per tonne for doing so. Freight: Harvest-time freight to local sites can come at a premium price in some areas of the country. Post-harvest cartage out of storage might save, for example, $5/t. Alternatively, delivery direct to port excluding double handling and cartage fees may also yield a premium. Cleaning: Jumping up a grade after cleaning can deliver upside pricing and it can be done on farm at a more convenient time than when harvest is in full swing if storage is available. Calculate the cost of owning a cleaner per tonne by taking into account the annual depreciation, opportunity cost of the capital tied up and repairs and maintenance and divide this by the number of tonnes put through annually. Add the cost of fuel and labour and allow for shrinkage to derive any final premium per tonne for cleaning. Blending: Where there are differentials between grades, utilising on-farm storage to blend up two differing grades may also see a lift in overall return.

Timeliness plays a big part in minimising risk of crop damage due to weather events. Avoiding downgrade pricing can provide a financial benefit but it will not apply every year. Drying: As with harvest logistics, getting the crop off early and in a timely fashion can prevent weather damage losses. The probability of this occurring needs to be taken into account by multiplying the probable cost of downgrade by the average occurrence.

FIXED COSTS OF STORING GRAIN ON-FARM

With the upsides and opportunities come costs. The initial investment is the most obvious of costs but consideration for the opportunity cost should also be taken into account. The latter incorporates any finance costs as the facility is paid off. Capital cost and depreciation: The most obvious cost is the initial capital investment in the storage structure, associated facility and handling equipment. Because these assets

continue to provide service over their lifetime and may be used multiple times per year, the cost should be totalled, divided by the tonnage capacity used and annualised to provide an annual depreciation cost per tonne. Opportunity cost on capital: Often overlooked, this cost accounts for what the capital tied up in the storage facility could be earning if invested elsewhere. Opportunity costs in farming enterprises typically relate to the interest rate on debt given this would likely be put to work paying this off if there was spare cash in the business. Given the interest payable reduces over time, the rule of thumb is to halve the overall interest rate to account for this.

VARIABLE COSTS

Apart from the obvious capital cost

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No. 44 September 2013 Research Report

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Options aplenty: Depending on the required period of storage, the grain storage mix for operation may include bags, sheds and sealed storages. But remember that the numbers will not always stack up favorably against the bulk system, so approach on-farm grain storage with an open mind.

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of investing in grain storage, other costs including labour to in-load and out-load and fumigants if the grain needs to be disinfected need to be taken into account. Storage hygiene: Possibly the best investment that can be made in a grain storage system. The time cost of keeping the facility clean is minimal but should be taken into account and is calculated by the total time cost as well as any structural treatment costs divided by the total tonnage of storage. Aeration cooling: While the capital cost of aeration equipment is taken into account in the fixed costs section, while minor, the cost of running fans should also be accounted for. To do this multiply the fan power draw in kilowatts by the total number of hours the aeration will run for the average storage period and multiply again by the power cost in kilowatt-hours. This will deliver a cost per tonne. Repairs and maintenance: Typically allow for 1% of capital cost per tonne to allow for things such as the replacement of seals in silos, auger maintenance and repair of tarps and walls in bunkers. In-loading and out-loading: The labour cost of in-load and out-load is given by dividing the labour cost per hour by 60 and dividing again by the auger flow rate in tonnes per minute. Multiplying the resulting figure by three to allow for not only in-load and out-load but also shifting augers and lining up trucks.

Monitoring and management: Management time varies between storage types. Grain bags require a higher monitoring regime to repair holes and need frequent checking. Silos are less intensive but should still be checked every two weeks in warmer months and every month in winter. Monitoring and management costs can be calculated at the total time taken to monitor and manage multiplied by the labour rate and then divided by the total tonnage stored to provide a cost per tonne. Opportunity cost of stored grain: Grain sitting in a silo doesn’t attract any growth, whereas if the grain was sold at harvest, the cash could be offsetting debt or invested in something providing a return. To determine the opportunity cost of stored grain, divide the number of months stored by 12. Then multiply this number by the annual interest rate or opportunity rate and then by the value of the grain at harvest. Insect treatments: If it is necessary to disinfect grain in storage for insects, allow for this cost as a cost per tonne treated. Remember that all fumigants must be maintained in gas-tight sealable storage. If using bunkers, allow additional costs to have the grain shifted into a sealed storage for treatment. Bag and bunker tarp costs: Being singleuse, bag costs per tonne are simply the total cost of the bag divided by capacity. Bunker tarps have a variable lifespan but the cost of tarps can be calculated by dividing the total cost of the tarp by the total tonnage stored

and dividing again by the estimated number of uses tarps will endure. Shrinkage: Despite best intents, losses and damage may occur during storage and when handling grain. Some storage options are also more prone to shrinkage, for example, bunkers. To calculate this cost, multiply the percentage lost by the value of the grain per tonne. Drying costs: Where drying is required, the cost per tonne should be allowed for. If the grain is dried using aeration fans, the energy cost should be allowed for in a similar way to the aeration cooling calculations. If continuous flow or batch dryers are purchased and used an annualised cost per tonne including depreciation, repairs and maintenance, opportunity cost, fuel and labour should be determined. Alternatively if a contract dryer is used, drying costs will typically be quoted on a cost per tonne basis.

ADDING IT ALL UP

With fixed and variable cost taken into account, add these to determine the total cost of storage and deduct this from the estimated potential upside pricing. This will provide an expected net benefit or loss from investing in on-farm storage and can be directly compared with the cost of warehousing. Use the following calculation page to determine if grain storage investment is for you. A useful reference will be the GRDCfunded grain storage economics booklet which can be downloaded via the information RR hub at www.storedgrain.com.au

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Financial gains from storage - calculation sheet

Example

Potential Benefits Harvest logistics/timeliness Grain price x reduction in value after damage % x probability of damage % Seasonal trends in market Post harvest grain price – harvest grain price Local market gain (feed to feedlot) Post harvest grain price – harvest grain price Freight (peak vs out-of-season rate) Peak rate $/t – post harvest rate $/t Cleaning to improve the grade Clean grain price – original grain price – cleaning costs – shrinkage Blending to lift average grade Blended price – ((low grade price x %mix) + (high grade price x %mix)) Drying for early harvest Grain price x reduction in value after damage % x probability of damage % Total benefits (Sum of benefits) Capital cost Capital cost Infrastructure cost ÷ storage capacity Fixed costs Fixed costs Annualised depreciation cost Capital cost $/t ÷ expected life of storage eg 25yrs Opportunity cost on capital Capital cost $/t x opportunity or interest rate eg 8% ÷ 2 Total fixed costs (Sum of fixed costs) Variable Costs Storage hygiene (Labour rate $/hr x time to clean hrs ÷ storage capacity) + structural treatment

Option 1

Option 2

Option 3

$16.20

$20.00

$36.20 $155.00 $6.20 $6.20 $12.40 $0.23

Aeration cooling Indicatively 23c for the first 8 days then 18c per month /t

$0.91

Repairs and maintenance Estimate eg. capital cost $/t x 1% Inload/outload time and fuel Labour rate $/hr ÷ 60 minutes ÷ auger rate t/m x 3 Time to monitor and manage Labour rate $/hr x total time to manage hrs ÷ storage capacity Opportunity cost of stored grain Grain price x opportunity or interest rate eg 8% ÷ 12 months x No. months stored Insect treatment cost Treatment cost $/t x No. of treatments Cost of bags or bunker tarp Price of bag ÷ bag capacity tonne Shrinkage (spilt/lost grain) Grain price $/t x percentage lost eg 0.2% Drying costs (optional) Total drying costs ÷ total tonne dried Total variable costs (Sum of variable costs)

$1.51 $0.88 $0.24 $7.20 $0.35

$11.32

Total cost of storage (Total fixed costs + total variable costs)

$32.72

Profit/Loss on storage (Total benefits - total costs of storage) ($/tonne)

$12.48

Return on investment (Profit or loss ÷ capital cost x 100) Payback period

8% 13 years

Source: GRDC

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Using nitrogen in practice Nitrogen is being used for grain storage insect control in two instances in Western Australia. While they are on very different scales, the technology employed is identical and the results encouraging. Kondinin Group engineer Ben White spoke to CBH Albany terminal manager Will Piercey and Lake Grace farmer Doug Clarke about their experiences with putting grain in storage under nitrogen.

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IN I N G Where gas cylinders have been used in the past, the difficulty in collecting and handling these bulky cylinders has seen a push from farmers and grain handlers to look at generation systems. Nitrogen generators have also become more affordable in recent times with the influence of China-built units seeing the cost of nitrogen generators come down in price significantly. A purity of at least 98% nitrogen is required to kill insects in stored grain over a

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No. 44 September 2013 Research Report

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f both the inert gases usually chosen for storing grain in an inert atmosphere, nitrogen is becoming the clear favourite. Carbon dioxide is more readily absorbed into grain than nitrogen and therefore requires more regular “topping up” to maintain a lethal concentration for insects. The desorption process also takes longer for carbon dioxide than nitrogen, making the fumigation time requirement longer.

7-10 day period. With air being 78% nitrogen to begin with, the generation process involves removing as much oxygen as possible (oxygen constitutes around 20% of atmospheric air). Typically, pressure-swing adsorption generators are used in preference to cylinders in recent-build nitrogen grain storage operations. PSA generators utilise the difference in size of molecules with nitrogen being larger than oxygen, allowing the oxygen molecules to pass through the molecular sieve while the nitrogen is collected and stored in a receival tank. See figure 1: nitrogen PSA systems. The nitrogen is then pumped into the grain storage, purging oxygen in the process until the atmosphere in the storage is as pure in nitrogen as possible, typically 99% or better. Keeping the silo hermetically sealed is imperative in preventing this concentration dropping below lethal levels. Depending on how full the storage is and the purity of the nitrogen atmosphere inside the silo, diurnal variations in temperature can see some air expunged – which then needs to be replaced with more pure nitrogen.

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FIGURE 1 Nitrogen PSA generation

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7. Nitrogen storage tank 8. Nitrogen distribution set (filter + regulator + flow meter)

Source: Inmatec

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N2 atmosphere advocate

L

ake King farmer Doug Clarke has been using nitrogen in his grain storage for three years and reports the system is working well and has not had any problems. The only issue Clarke has encountered is meeting the demand for grain stored under nitrogen with buyers offering to buy multiple times more than he can produce and store. Having invested $70,000 in a mobile nitrogen generation system and kitting out a set of bird silos with plumbing to accommodate nitrogen, he is now adapting nitrogen plenums to all his other on-farm silos as well as some novel grain storage vessels, closely resembling chemical shuttles, which are destined for a specialist market. Since installing and using the system, Clarke has had numerous international buyers come to look at his system. He says offers of tonnage contracts exceeding what he can supply have vindicated the decision

to invest in the system. Running costs are predominantly diesel, which has equated to around five litres of diesel to deliver 30m3 of nitrogen. A 70-tonne silo requires about 90m3 of nitrogen to be generated to purge to a lethal level requiring 15L of diesel to generate.

No filters in the PSA have had to be changed to date, so Clarke estimated his variable cost per tonne to be around 21c/t. With capital costs considered, he reckons the nitrogen system would not be far off the cost of phosphine, which is close to 40c/t.

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Email: sales@geronimo.com.au No. 44 September 2013 Research Report

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CASE STUDY 1 Doug Clarke, Lake King

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Diurnal gas expansion does see some ventilation, depending on the void volume in the silo. Rather than vent through the valve, Doug worked with Don Bird from Bird’s Silos to build an accumulation tank to store purged nitrogen and reuse it as the silo cools.

Doug Clarke has utilised the silo thermosiphon plumbing and adapted it to take a banjo fitting for adding nitrogen to the silo. During filling with nitrogen, the centre valve is closed, the valve on the left is opened to purge air as it comes down the thermosiphon.

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No. 44 September 2013 Research Report

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Mobile nitrogen trailer includes a generator and screw compressor, dryer, PSA generator and nitrogen storage tank. Having the unit trailer mounted means the unit can be transported to silos dispersed over the farm.

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CASE STUDY 2 CBH Albany

Bulk handler opts for nitrogen

W

ith more than 100,000 tonnes of storage under nitrogen, CBH Group has made a significant investment into its Albany terminal. Terminal manager Will Piercey reports the system was optimised with the assistance of the team from Murdoch University to set function parameters for effective insect control in both summer and winter. Comprising 10, 10,000t sealed silos, CBH uses the nitrogen storage facility mainly for canola bound for harvest shipping and is serviced by a 350m3 per hour PSA generator. The jury is still out on energy costs using the system but costs are not the only reason CBH has gone down the nitrogen path.

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IN I N G The CBH says the PSA generator is a substantial investment but plays a vital role in protecting the longevity of phosphine.

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It sees nitrogen as a valuable tool in protecting the longevity of phosphine as the dominant insect fumigant. Nitrogen also provides a timely turnaround to cargo the grain during the harvest months. The 10,000t cells are all sealed and maintained at 98% nitrogen for between seven and 10 days, depending on the temperature of the grain and the resulting activity level of insects. Warmer grain sees more active insects and therefore a faster kill of the entire lifecycle than in cooler grain. Cooler temperatures will often see a higher nitrogen top-up requirement once the majority of the oxygen is purged to ensure all insect life stages are covered. Pending operating costs, expansion plans across other CBH ports may proceed over the next five years.

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ith significant canola acreage being grown around the country this year, some farmers will look to store the

grain on-farm. But due to its high proportion and ranging oil content, the ability of canola to carry moisture is limited - and dependent on that oil proportion. To ensure quality of canola is maintained in storage, farmers need to ensure grain goes into storage below unsafe moisture content levels, which depend heavily on oil content ratios (See Figure 1). Aeration should also be considered as a valuable tool to minimise hot spots in the stack, to disperse moisture evenly and cool the grain to maintain quality. Aim for two to three litres per second per tonne stored. And be aware that fan flow rates drop by 40-60% due to the higher

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Storing canola? Consider this

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back pressure when pushing air through canola. Temperature of the grain in storage should be monitored. Sampling for insects should be undertaken once every four weeks in cooler months and every two weeks in summer. Although less common in canola than cereals, insects will attack canola, particularly if high levels of chaff admixture is present. If infestation occurs, treat with Phosphine. Fumigation should only be used only in a gas-tight sealed storage meeting Australian Standard AS2628. When in storage, canola quality measures including free fatty acids (FFAs), oil content, oil colour, residues, insects, insect damage, mould and mycotoxins can all be affected. When it all goes wrong, oil from poorly stored canola can be unusable. The oil on the right came from canola that had been put into a silo with an elevated moisture level and as a result, came out of storage at temperatures as high as 65OC. Because of this, the FFA levels are well outside specification and the oil is RR unusable.

Oils ain’t oils: When canola is stored at moisture levels above the unsafe storage limits, sweating and heat build-up can occur causing oil quality to degrade quickly. The oil on the right is very high is FFA’s and is virtually unusable.

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Grain protectants and fumigants: product update

O

ver the past three years, there have been a number of product releases and products awaiting registration in the grain storage protectants category. Most notably, the Spinosad product from Dow named ‘Conserve’ and the Deltametherin based ‘K-Obiol’ from Bayer are two new grain protectants and therefore relevant only for growers in the eastern states. Being grain protectants, they need to be applied as grain is entering the storage and will not treat infested grain. Concerns from the Australian Pesticides and Veterinary Medicines Authority (APVMA) for both of these products revolve around the potential for breaches of Maximum Residue Levels (MRL) if the protectant was to be applied more than once to grain. To overcome this and gain registration or permit status, Dow and Bayer have implemented limited access programs, relying on supply prerequisites including training and limitations on who and where the product can be used. Protectants, structural treatments www.farmingahead.com.au

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Photo: Queensland Department of Agriculture, Fisheries and Forestry

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due to the impact it has on angles of repose and flow characteristics when handling treated grain. But grain storage experts agree that DE is a worthy structural treatment option and should be used in conjunction with a thorough on-farm hygiene regime. Photo: Queensland Department of Agriculture, Fisheries and Forestry

and disinfectants update. Remember that protectants are only relevant to those in the Eastern States and not Western Australia. • Spinosad eg. Conserve (Dow) – A protectant only registered for bulk handers at this stage, but according to Dow, it has secured a permit for Conserve on-farm use with APVMA. As part of the permit, treatment can only be applied by farmers to grain grown on the same farm. It must only be applied once and will be monitored through the National Residue Survey (NRS). The transition from a two-year permit to registration is contingent on the NRS results at the completion of the two-year permit period. • Deltamethrin eg. K-Obiol Combi (Bayer) – A registered protectant now being used in the eastern states, but purchase and use is limited to approved users who have completed a training program and are annually audited in relation to their K-Obiol use.

• Chlorpyrifos-methyl eg. Reldan and Reldan PluS (Dow) – Chlorpyrifosmethyl base Reldan is a registered protectant and structural treatment for the control of insect pests in stored grain and lupins (except for malting barley and rice), and on surfaces of buildings and equipment. But due to widespread resistance, straight Reldan is unlikely to kill lesser grain borer and saw-tooth grain beetle. Combination product, ‘Reldan pluS’ includes S-methoprene to broaden control to include saw tooth grain beetle. • Pirimiphos-methyl eg. Actellic 900 (AgNova) – Only provides control for rust-red flour beetle, rice weevil and flat grain beetle, but does not control lesser grain borer and resistance to Pirimiphosmethyl is widespread for saw tooth grain beetle. • Diatomaceous earth (DE) eg. Absorbacide - As a protectant, DE has been shunned by bulk-handlers and farmers alike

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Research Report September 2013 No. 44

• Fenitrothion eg. Fenitrothion 1000 (Nufarm, Farmoz etc) - A structural treatment widely used across the country and as a protectant in the eastern states. Shortcomings as a protectant include the resistance of lesser grain borers and inability to kill flat grain beetle and sawtooth beetle. Do not store oilseeds in storages treated with Fenitrothion, and be particularly careful with concrete storages because oilseeds can readily absorb Fenitrothion out of the concrete years after it has been applied. • Phosphine eg. Fumitoxin (Nufarm) – the most commonly used and lowest-cost grain disinfectant. Phosphine should only be used in a gas-tight sealed silo meeting Australian Standard AS 2628. Use in unsealed or non-maintained sealed silos will increase the risk of resistance with no easy-to-access farmer-applicable alternatives. • Dichlovos eg. Dichlorvos 1140 (Nufarm) – Having been around for many years and now a generic, cheaper chemical, Dichlorvos is under review pending the findings of concerns relating to OH&S issues around application, the environment, residues and trade. Despite its usefulness for bulk-handlers as a disinfectant and structural treatment, with little commercial impetus from chemical companies to undertake the required work to maintain a permit or reregistration for the use of Dichlorvos, it looks like it may not be an option for much longer. • Sulfuryl Fluoride eg. ProFume (Bayer) –– A disinfectant for licensed fumigators. ProFume can only be applied by users having completed Dow AgroSciences fumigation training, implemented to ensure the longevity of the product. As with Phosphine, Profume can only be applied in a gas-tight sealed silo to provide effective control, but may provide control of phosphine-resistant flat grain beetles. Only suitable for cereals. • Ethyl Formate eg. Vapormate (BOC) – A disinfectant for licensed fumigators, Vapormate is only registered to control adult-life stage of rice weevil, lesser grain borer, rust-red flour beetle and psocids RR (booklice). www.farmingahead.com.au


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Research Report - September 2013